PFS shifts stance on VAT treatment of rejected recommendations

The Personal Finance Society (PFS) has revised its VAT guidance following clarification from HM Revenue & Customs (HMRC) over whether advice leading to a product recommendation which is then rejected should be vatable.

In its original VAT guidance published in September 2012, the PFS said that if an adviser recommended a product, having obtained illustrations from a provider and passed these onto a client who pays the advice fee but takes no further action, the fee would not be VAT-exempt.

The September guidance said VAT would have to be charged as the adviser had not ‘acted between a product provider and the customer with a view to arranging a sale of a product’.

However, following talks with HMRC the PFS has revised this and now says the fee paid by the client, despite them rejecting the recommendation, would in fact be VAT-exempt.

It said the adviser would not be liable to pay VAT on the fee received because they would have taken five steps of HMRC’s six stage advice process.

HMRC’s own VAT guidance published in March 2012 set out six stages of the advice process which are:

factfind;

research;

provide client with reports, health checks, and forecasts;

recommend a specific product, including prices;

act between provider and client with a view to arranging a sale;

where the client agrees to the sale, monitor and ensure it continues to meet the client’s requirements.

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